[Great Transformation to Productive Finance]③ SME Loans Quadruple After Launch of Lee Administration... Massive Capital Injection and Dedicated Units Established

Lee Administration's Push for 'Productive Finance' Drives Fourfold Surge in SME Loans in the Second Half
Technology Credit Loans Also See Sharp Increase
Financial Sector Injects Tens to Hundreds of Trillions in Capital, Establishes Dedicated Units i

Editor's Note
Public dissatisfaction is mounting due to the sharp surge in real estate prices. While incomes have stagnated, housing prices have soared, significantly undermining residential stability. The root cause of this instability in the real estate market is seen as the excessive real estate financing by the financial sector. Critics point out that financial institutions are not supplying funds to productive sectors such as corporations or high-tech industries, but instead are focusing on non-productive areas like real estate-backed loans, leading to an oversupply of credit in the market and fueling the rise in real estate prices. The Lee Jaemyung administration has made the “Great Transformation to Productive Finance” a key goal of its economic policy, based on this understanding of the problem. Overseas, since the 2008 global financial crisis, financial institutions have reflected on their practices and have been pushing for a shift toward productive finance. In Korea as well, there are growing calls for the government and political circles to provide policy support, and for financial institutions to change their mindset, in order for productive finance to take root.

Since the launch of the Lee Jaemyung administration, corporate loans (including large corporations, small and medium-sized enterprises, and individual business owners) at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) have increased by approximately 12 trillion won. This represents a nearly threefold increase compared to the first half of the year, in less than four months. This is the result of the Lee administration’s continued emphasis on a “great transformation to productive finance,” encouraging funds to flow to future industries and small business owners. Various efforts are underway to ensure that this initiative does not remain a mere political slogan, but that finance can serve as a growth engine to address Korea’s structural economic challenges, such as low growth, polarization, and stagnation in innovation.

Lee’s “Productive Finance” Initiative Quadruples SME Loans... A Complete Turnaround from Early This Year

According to the five major banks on October 21, the total amount of corporate loans stood at 841.8689 trillion won. This is an increase of 12.1306 trillion won compared to the first half of the year (829.7383 trillion won). Breaking it down, large corporate loans increased by 5.2734 trillion won and SME loans (including individual business owners) increased by 5.9801 trillion won in the second half of the year. Large corporate loans nearly doubled compared to the first half (2.5519 trillion won), while SME loans increased about fourfold compared to the first half (1.4636 trillion won).

This is a complete reversal from the beginning of the year. At that time, strengthened risk management and a slowdown in corporate investment demand due to the economic downturn led to a decrease in corporate loans. In fact, as of the end of March, the corporate loan balance at the five major banks decreased by about 2.4937 trillion won compared to the previous month. It was the first time in about five years since June 2020, when the COVID-19 pandemic caused a severe economic downturn, that the corporate loan balance had decreased month-on-month. Both SME loans (including individual business owners) and large corporate loans declined due to the impact of COVID-19.

Technology credit loans have also shown a sharp increase in the second half of the year. According to the Korea Federation of Banks, as of the end of August, the balance of technology credit loans at the five major banks was 156.6658 trillion won, up 1.3065 trillion won from the previous month (155.3593 trillion won). Compared to the previous period (June to July), when the increase was 78.6 billion won, this is about double, indicating a rapid surge in the second half of the year. Technology credit loans are loan products for venture companies or SMEs that lack credit or collateral capacity but use their technological capabilities as collateral. Banks have offered these products since 2014.

This also stands in stark contrast to the first half of the year. Technology credit loans, which had contracted due to rising delinquency rates and enhanced risk management, are now benefiting from the Lee administration’s “productive finance” policy and the expansion of funding for venture and risk capital.

Within and outside the financial sector, this change is being attributed to the “new administration effect.” A representative from one of the major commercial banks said, “Since the new administration took office, there has been a push to expand investment in venture capital and promote win-win finance. Given the nature of the financial industry, it is inevitable that we align with government demands.”

Another commercial bank official explained, “From late last year to early this year, political uncertainty and a sluggish domestic economy made it difficult to expand lending, and large corporations raised funds by issuing corporate bonds, leading to a decrease in corporate loans. However, under the new administration’s real estate policy, it has become difficult to generate profits from household loans, so banks are now looking to corporate loans as a new growth engine and seeking new opportunities.”

“Hana 100 Trillion, Woori 80 Trillion”... Rush to Establish Dedicated Productive Finance Units

The financial sector is not only injecting large-scale capital for the shift to productive finance but is also restructuring their organizations, such as establishing dedicated departments. In particular, the five major financial holding companies plan to expand productive finance across the board by leveraging synergies among their subsidiaries, including banks, securities, insurance, and card companies.

Last month, Woori Financial Group Chairman Lim Jongryong personally held a joint CEO briefing for the “Woori Financial Future Co-Growth Project,” unveiling a blueprint to inject a total of 80 trillion won over the next five years. Of this, 73 trillion won will go to productive finance and 7 trillion won to inclusive finance.

Of the 73 trillion won earmarked for productive finance, Woori Financial plans to invest 10 trillion won in the National Growth Fund. This is considered the first private sector-driven example of the National Growth Fund (150 trillion won) proposed by President Lee in a national report in August. In the upcoming regular personnel reshuffle in December, Woori Financial plans to establish a new “Productive Finance Department” (tentative name) to serve as the control tower for related work and to strengthen execution. The “Productive Finance Research Center” within the management research institute will also be expanded and reorganized to function as a think tank supporting the transition to productive finance across all group subsidiaries.

Lim Jongryong, Chairman of Woori Financial Group, said, “Through the Future Co-Growth Project, we will achieve a transition to productive finance and expand inclusive finance, laying the foundation for Woori Financial’s sustainable growth.”

Hana Financial Group is promoting the “Hana All Growth Project,” worth 100 trillion won over the next five years. By 2030, it plans to provide 84 trillion won for productive finance and 16 trillion won for inclusive finance. To this end, it is establishing an “Economic Growth Strategy Task Force (TF)” with participation from all subsidiaries, including banking, securities, cards, capital, insurance, and asset management, and is formulating a company-wide implementation plan. Special products such as “Core Growth Loans” and “Industrial Complex Growth Dream Loans” will also be introduced to foster national strategic industries such as artificial intelligence (AI) and biotechnology.

Hana Financial Group Chairman Ham Youngjoo emphasized, “We will completely break away from the traditional approach that easily generated profits and push for a group-wide transformation so that funds can flow into productive sectors.”

NH Nonghyup Financial Group also launched the “Productive Finance Activation TF” on the 1st, led by Chairman Lee Chanwoo. This follows the “Productive Finance Activation Meeting” held in August, and the task force will be upgraded to a committee next year to enhance execution.

For the first project of NH Nonghyup Financial’s productive finance, NH Investment & Securities submitted an application to the financial authorities on September 29 for designation as an IMA business, aiming to actively promote capital inflows into productive sectors such as high-tech industries and innovative companies.

In addition, while KB Financial Group and Shinhan Financial Group have not officially announced concrete blueprints for productive finance, they are reportedly giving the matter serious consideration.

On September 30, KB Financial Group launched the “Group Productive Finance Council,” with key executives from each subsidiary participating. The group plans to restructure its portfolio away from a focus on real estate-backed loans toward corporate and infrastructure finance. KB Financial Group also plans to establish dedicated units within KB Kookmin Bank and KB Securities to support the expansion of productive finance. In the long term, it aims to reduce its reliance on real estate-backed loans and expand productive finance by downsizing real estate finance-related business units and expanding corporate and infrastructure finance units.

Shinhan Financial Group is currently in the process of selecting its next chairman and CEO, so it is cautious about announcing specific plans for productive finance at this time. However, it is reportedly making internal preparations to align with the government’s “productive finance” policy. Shinhan Financial Group has established an “Ultra-Innovation Economy Growth Support” unit to identify promising companies within the value chain and provide tailored financial infrastructure necessary for industrial growth.